TV stocks fall as broker sees FCC clampdown on ad-sharing deals

March 17, 2014|Reuters

(Reuters) - Shares of TV station operators such as Nexstar Broadcasting Group Inc and Sinclair Broadcast Group Inc fell after a Wells Fargo Securities note said the Federal Communications Commission was likely to clamp down on deals that involve TV stations jointly selling ads.

The brokerage said that after having spoken with regulators it "appears" that the FCC will not allow any pending deals with any kind of "shared" arrangements to close until or unless they are restructured to exclude such stations and related loan guarantees.

The FCC will vote on new rules on March 31 that would prohibit broadcast companies from controlling more than two TV stations in a market by sharing advertising sales staff.

If adopted, the FCC rules could prompt TV station divestitures in some markets.

The industry saw a flurry of deals last year, with Gannett Co Inc buying Belo Corp for $1.5 billion, Tribune Co buying Local TV Holdings LLC for $2.7 billion, and Sinclair buying eight TV stations from the Allbritton family for $985 million.

Wells Fargo cut its rating on broadcast stocks Nexstar, Sinclair, Gray Television Inc and Lin Media LLC to "market perform", and on the sector to "market weight."

Shares of Sinclair were down 8 percent at $24.37, while those of Nexstar were down 9 percent at $33.50 on the Nasdaq in late-afternoon trading.

Gray Television shares were down 12 percent at $9.25 and those of Lin Media were down 4.5 percent at $20.33.

Current FCC rules typically prohibit one broadcaster from owning two TV stations in one local market. But some companies have relied on workarounds, sometimes known as sidecar arrangements, that the FCC says often give one broadcaster de facto control over another station's programming and finances.

Some stations in the same market strike so-called joint services agreements under which one of them sells some or all advertising for the other. Others reach agreements to share assets such as news helicopters.

Under the proposed rules, the FCC would give broadcasters two years to divest or apply for waivers, which the regulator would consider on a case-by-case basis to see if they are in the public interest.